The Dow Jones Industrial Average (DJINDICES:^DJI) had slipped 0.44% by 11 a.m. EST Monday as all eyes turned to the U.S. Congress and its ability to pass stimulus legislation as the COVID-19 pandemic worsens. A $908 billion bill is in the works from a group of bipartisan lawmakers, but disagreements remain, and the bill likely won’t include direct payments to Americans.
Shares of Boeing (NYSE:BA) led the Dow on Monday after an analyst upgraded the stock on the expectation that demand for air travel will make a strong recovery once the pandemic has passed. Meanwhile, shares of Walmart (NYSE:WMT) headed lower after the company reportedly began exploring an IPO for Flipkart.
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Boeing upgraded on recovery hopes
Boeing completely stopped 737 MAX production in January as undelivered planes piled up. The 737 MAX was grounded in March 2019 following two fatal crashes, but Boeing had continued to build the troubled plane.
Then the COVID-19 pandemic hit, decimating demand for air travel. Boeing eventually restarted 737 MAX production in May, many months before the grounding order from the Federal Aviation Administration was finally lifted. Production rates are currently low, and Boeing plans to gradually increase production to 31 planes per month by the beginning of 2022. After that, market demand will dictate any further production increases.
Analysts at UBS are optimistic that Boeing can bring its 737 MAX production numbers higher as demand for air travel rebounds after the pandemic ends. MarketWatch reported on Monday that UBS had upgraded Boeing stock from neutral to buy, doubling its price target to $300 in the process.
UBS sees a path for Boeing to push production of the 737 MAX to 50 or more planes per month, driven by a strong recovery in domestic and leisure travel, and strong demand from low-cost airlines. Last week, European budget carrier Ryanair ordered 75 of the planes in anticipation of a postpandemic demand rebound.
UBS also pointed to the lowest average analyst rating on Boeing stock in a decade, the eventual relaxation of travel restrictions, and the upcoming certification of the 737 MAX in China as further reasons the stock could surge.
How long it takes demand for air travel to fully recover after the pandemic is over is an open question. Pent-up demand for travel will collide with a weak and uneven economy, so it’s anyone’s guess how passenger numbers evolve in the coming years. Shares of Boeing were up about 3.9% Monday morning on the upgrade news as investors bought into UBS’ view.
Walmart considering Flipkart IPO
Indian business news publication Mint reported on Monday that megaretailer Walmart had hired Goldman Sachs to look into an initial public offering of Flipkart in the U.S. The plan, according to Mint‘s sources, is for Walmart to sell around 25% of Flipkart and raise about $10 billion in the process.
Walmart acquired 77% of India’s largest online retailer for $16 billion back in 2018. If the company goes through with the IPO as reportedly planned, Flipkart’s valuation since that purchase will have just about doubled to $40 billion. Flipkart’s valuation was $24.9 billion in July after the company raised $1.2 billion in new funding, with Walmart acting as the lead investor.
This may be the perfect time to IPO an e-commerce company. The COVID-19 pandemic has led to fewer store visits and more online shopping for consumers around the world. It’s hard to say how much of this shift will be permanent once the pandemic ends, but high valuations for e-commerce stocks suggest that investors believe the good times will continue long after the pandemic has passed.
Shares of Walmart were down about 0.9% Monday morning. The stock has surged 24% this year as sales boomed during the pandemic.
